Could I Lose My Home to Credit Card Debt?

I am 58, a resident of St. Louis County, Mo., and, because of a physical handicap, I have not been able to work. I get about $700 monthly from Social Security income (and some food stamps) and live alone. I have one son who is just starting out as a freelance writer and can’t afford to help really.

Anyhow, I ran up just under $30,000 on three different credit cards. When I had a job, I used to make payments on those cards religiously (I had a fantastic credit rating). But I stopped working two years ago and stopped making payments. I have cut back but still barely have enough to get along. I have a car (no payments) and live in a condo (paid for but costs $170 monthly in fees to live there).

I know they can’t take my government income, but can they take my condo away if I do nothing? So far that’s what I’ve been doing: nothing. I’ve thought about putting the condo in my son’s name, although that would mess up both of our taxes so I don’t want to do that. I have heard of some kind of “trust” you can use with real property in situations like this, but don’t know anything about it. I doubt I can afford a lawyer. Thank you in advance. — L.B.

Dear L.B.,

I am so glad you wrote to me because I believe my response will cause you to feel a whole lot better about your situation. Chances are high that your money and home are protected.

My supposition is based on knowing what can legally happen when one does not pay an unsecured credit card debt. If you were to ignore it (as you have been), the balance remains with the original creditor for about six months. After that, the credit card company will either sue you or charge the debt off and sell the account to a collection agency. If you still don’t pay, they too can take legal action against you. Though you didn’t mention any debt collectors, because of the time frame you described, you’re almost certainly dealing with collection agencies by now.

If you are sued, you’ll probably lose because you legitimately ran up the balances. In that event, you’ll be subject to post-judgment collection action. What can happen depends on the state, but it typically includes liens on real property (when you go to sell it, the amount due will be taken from the proceeds of the sale) and wage garnishment. Levies are another possibility — that’s when judgment creditors may force the sale of non-exempt property, and as with the liens, take the amount they are due.

The preceding paragraph may not sound like good news, but don’t panic. It’s true that Social Security income cannot be garnished. If you don’t have any property that can be taken and sold, you’re fine there. As for your home, it is quite rare for people who owe a judgment for credit card debt to lose their primary residence (a lien is likely, but it will really only affect you when you go to sell it).

So what can and should you do? Well, you can continue to bury your head in the sand. The statute of limitations for suing someone with your kind of debt is five years in Missouri, so if you wait it out another three, you’ll be in the clear. It’s a risk, but if the creditors know that you don’t have the means to pay now or in the foreseeable future, they may choose to forget the debt.

As for getting creative and trying to protect your assets by forming a trust or switching ownership to your son, stop. Let’s not get complicated. If you don’t have the cash to pay and don’t want to wait out the statute of limitations (or if your creditors sue you in the meantime), you have a far simpler option: You can declare bankruptcy.

For specific details about what you, specifically, may be able to keep after a debt discharge, you’ll need to see an attorney, but basically it works this way regarding the home: A certain amount is protected as a homestead exemption. If you have less equity in your condo than your state permits, you’re in the clear. If you have more than that, you can use the equity to pay what you owe. A good bankruptcy attorney will give you all those facts, but to start, see a credit counseling agency that is accredited to conduct bankruptcy advising.

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